China, Russia and the Breakdown in the BRIC ETFs
While markets in Taiwan and Hong Kong recovered to finish just outside of technically oversold territory on the first trading day of the week, markets in China and Russia continued lower and are set to open short-term oversold when trading begins Tuesday morning.
The iShares FTSE/Xinhua China 25 ETF (NYSE: FXI) pulled back by more than 2% on Monday, dropping into oversold territory and closing lower for the third day out of the last four. The ETF is now trading nearer to bear market territory than at any time since FXI climbed back above its 200-day moving average in late January.
Opening with a neutral, 5 out of 10 rating Monday morning, FXI earned a one-point upgrade early in the session, and so far has developed a short-term, positive edge of one and a quarter percent. The last time FXI traded oversold was during a pullback at the beginning of March, during which the ETF sold off for four out of five sessions. Finishing twice in technically oversold territory, shares of FXI rallied by more than 5% over the next five days.
Also trading oversold ahead of Tuesday’s open are shares of the Market Vectors Russia ETF (NYSE: RSX). RSX has closed lower for two days in a row, earning a positive edge in the short-term of 1%.
The pullback in RSX is not the first since the ETF moved back into bull market territory at the end of February. But it unlike the stock’s short, sharp drop earlier in March, the current sell-off in RSX has not taken the stock below its 200-day moving average, a move that would invalidate the fund as an option for many short-term traders and active investors. That said, RSX did rally powerfully from that two-day sell-off, bouncing for four out of the next five days and gaining more than 4%.
Traders may want to keep an eye on the markets in Taiwan and Hong Kong, as well – the iShares MSCI Taiwan Index Fund ETF (NYSE: EWT) and the iShares MSCI Hong Kong Index Fund ETF (NYSE: EWH). Although buyers stepped in to keep these ETFs from finishing short-term oversold on Monday, any resumption in selling over the next day or two could easily return these funds to levels where traders have been more inclined to buy than sell.
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David Penn is Editor in Chief of TradingMarkets.com